“One of the festival’s principal functions is to serve as an industry vehicle,” says San Sebastian director Mikel Olaciregui.

It’s in industry events where the Basque resort fest has grown most dramatically under Olaciregui, its director since 2001.

As Olaciregui points out, San Sebastian has built industry initiatives since creating a new-directors prize in the mid-1980s. In 2001, it added Films in Progress, a showcase for Latin American films seeking completion funds, and Cinema in Motion in 2006. This year, it’s strengthening its Film School meet.

The subsequent biz, though niche, is heartening. Bavaria Films Intl. caught “The Pope’s Toilet” at Progress in 2006, tracked it, and eventually picked up international rights. That paid handsome dividends after its Cannes Un Certain Regard selection last year. “Toilet” has sold to 31 territories, including a U.S. pickup.

All these pics are preems. Closing five days before San Sebastian, Toronto inevitably steals some of its world preem thunder: Ten of San Sebastian’s 18 main Competition players unspooled in the Canadian festival.

But some Toronto screeners are lost in the crush. San Sebastian affords “catch-up” value, says Bavaria’s topper, Thorsten Ritter. “It offers well-crafted, classy films with a ‘second-look’ quality, the kind that need some time to sink in.”

And the Spanish sprocket opera offers around 26 world preems of its own this year. The highest-profile may well be Kim Ki-duk’s chamber drama “Dream.” Christophe Honore will unveil “The Beautiful Person,” a contempo redo of “The Princess of Cleves”; another first-time showing is the Mathieu Kassowitz-produced “Louise Michel,” from Benoit Delepine and Gustave Kervern. Jonathan Demme will present “Neil Young Trunk Show” as a work-in-progress.

Of Spanish Competition world preems, Jaime Rosales’ “Bullet in the Head,” about Basque terrorism, and “Camino,” which turns on Opus Dei, will surely spark controversy. Another Spanish world preem, Belen Macias’ “El patio de mi carcel,” focuses on women prisoners mounting a theater production.

For Alexei Boltho, Paramount Intl.’s London-based director, co-productions & acquisitions, the Basque confab is a good “showcase for established and emerging Spanish talent.”

But the rub for many sales agents is simply using San Sebastian to trigger a sale to Spain on films they’re already handling.

As the Spanish market becomes tougher, that’s become more important, though snagging Spanish distributors’ interest is a problem, and many have emptied their wallets at Toronto, Wide Management’s Magneron notes.

“Frozen River,” sold by Rezo, was picked up in late August by Sagrera TV, following its San Sebastian competish selection. Rezo sold John Sayles’ “Honeydripper” to Golem during last year’s fest.

“To date, I’ve always sold a film to Spain if it’s in Competition,” says Rezo’s Sebastien Chesneau.

For Luis Angel Bellaba, CEO of Spanish production-distribution house Aquelarre, “At San Sebastian it’s very important for a film to receive recognition, either from critics or, best of all, a prize, providing fundamental marketing tools at a difficult time for film production and distribution.”

San Sebastian “doesn’t have more impact than Locarno in Germany, France and Italy, but tends to be more recognized in Latin America,” says Imagina Intl.’s film sales head Beatriz Setuain.

Above all, in industry terms, San Sebastian seems to pose a dilemma: What comes first, the food or the festival? In fact, restaurants bring a lot to the table, biz-wise, even beyond Aquelarre Restaurant’s seven-course menu de degustacion.

For Catafal, the festival’s famously leisurely lunches are no accident — they form part of the moviethon’s appeal, as San Sebastian’s an ideal place to start or further relations.

Vertice 360 film head Adolfo Blanco agrees: “At San Sebastian, you take far fewer meetings, but they’re much more rewarding,” although lunches give the word “sleeper” a whole different meaning at afternoon screenings.

Not surprisingly, “When people come to San Sebastian, they always come back,” says Morales. And not just for the food.